Amazon.com, Inc. (NASDAQ:AMZN) has been underscored as a significant player in the artificial intelligence sector, particularly after a recent upgrade from Wells Fargo analyst Ken Gawrelski. On September 24, Gawrelski elevated Amazon’s stock rating from Equal Weight to Overweight, revising the price target to $280.00, up from $245.00.
The analyst expressed heightened confidence in anticipated revenue acceleration from Amazon Web Services (AWS), forecasted to begin in 2026, largely driven by Project Rainier. This initiative entails the establishment of a dedicated AWS data center in Indiana for Anthropic compute. It is expected that this facility will start to come online in January 2026 and, at full capacity of 2.2GW, will potentially generate around $14 billion in annual revenue for AWS.
Although Gawrelski acknowledged that AWS’s market share might continue to decline in the short term, he emphasized that the overall growth of the cloud industry will likely revive AWS’s performance. He believes that Project Rainier will be pivotal for this acceleration, contributing approximately 5% and 4% to AWS growth in 2026 and 2027, respectively. Gawrelski has increased his estimates for AWS growth to 22%, surpassing the previous consensus of 19% and 18%.
The analysis suggests that while AWS may face some challenges, including execution hurdles for Rainier, potential performance issues with Trainium chips, and slower demand for core workloads, the fundamental growth of the industry provides optimism. Gawrelski detailed that AWS’s share loss is expected to peak in 2025, reflecting a decline of 470 basis points year-over-year, but is anticipated to improve thereafter with the acceleration in AWS’s capabilities.
The forecast indicates that by 2029, AWS’s market share could drop to 32%, down from 47% in 2024. Yet, during that period, the cloud industry is projected to expand significantly, achieving a compound annual growth rate (CAGR) of 31%, growing from $230 billion in 2024 to an estimated $870 billion.
However, there are noted risks, including the effectiveness of scaling Project Rainier amidst ongoing supply constraints, the performance of Trainium chips, and any further deceleration in non-AI workload demands. Gawrelski has projected that AWS operating income margins might experience compression, with decreases of 270 basis points year-over-year in 2026 and 180 basis points in 2027.
Amidst the evolving landscape of AI stocks, while Amazon represents a key investment opportunity, some analysts point out that other AI stocks might offer greater potential with lower associated risks. Furthermore, ongoing discussions around undervalued AI investments and their relationship with geopolitical factors, such as Trump-era tariffs, continue to shape market sentiments.
